The Ares Capital Corporation has arranged an $800 million first and second lien financing for Bregal Partners-backed American Seafoods. The deal involves Ares holding a large slice of the debt and syndicating the rest to a group of about 30 lenders. ARCC chief executive Kipp deVeer flagged the deal on the BDC’s earnings call earlier this month, saying Ares plans to retain between $100 million and $200 million of the loan and syndicate the balance, earning $8 million to $9 million in fees. Most of the other lenders in the transaction are alternative lenders, though there are a couple banks committing.
The transaction includes a distressed exchange of the issuer’s payment-in-kind (PIK) notes and the refinancing of the company’s existing bank debt. The new package is comprised of a $540 million first lien term loan, a $60 million revolving credit facility and a $200 million second lien term loan. Pricing on the first lien line is 500bps over Libor while the second lien debt pays 900bps over Libor. The Libor floors are yet to be determined.
The first lien term loan is rated B+ by Standard &Poor’s while the agency rates the second lien debt at CCC+/Caa2. S&P rates American Seafood Group B-.
The deal cuts and replaces American Seafood’s existing credit lines. It is not clear how much of a haircut existing PIK lenders took but the company’s private equity sponsor Bregal Partners, along with Frank Dulcich, CEO of Pacific Seafood Group, Chris Lischewski, CEO of Bumble Bee Foods, and Amy Humphreys, former CEO of Icicle Seafoods, have injected fresh equity into the firm. The deal leaves Bregal holding a significant minority stake in the firm, alongside the firm’s current management who also control a stake.
“The deleveraging recapitalization significantly reduces the Company’s indebtedness, establishes stable, long-term financing, and provides the Company with a patient and strategic investor base, strengthening its position as a leading provider of sustainable seafood products,” said a statement from the company.
A report on the financing by Wells Fargo analyst Jonathan Bock said the leverage was more than 6.5x “We view this transaction as one of the first of its kind. While some formerly broadly syndicated issuers have found a home with BDC lenders, we have yet to see a BDC underwrite a large transaction and syndicate the deal to traditional accounts. This is a clear example of leveraged lending guidance pushing non-pass transaction into the hands of non-bank underwriters/lenders,” Bock wrote.
Most of the company’s previous lenders were banks and the company had been at the risk of defaulting on its debt, as several publications had reported over the past year. Most of the company’s existing debt will be paid back using the new credit facility, deVeer told PDI.
Scott Perekslis and Bob Bergmann at Bregal Partners led the equity financing into the company. The duo had worked with American Seafoods before, and with Ares on other deals in the past, including those at Bregal Partners and while in their previous roles at Centre Partners.
On the earnings call earlier this month, deVeer touted the deal as an example of the firm’s continuing ability to lead large deals without the involvement of GE Capital, its long-time partner in the SSLP (Senior Secured Loan Program) partnership that has come to an end. Neither GE Capital, nor Varagon Capital Partners, Ares’ new partner in a similar JV, were involved in this deal.
Bregal Partners is a private investment firm that invests alongside management teams to build mid-market companies. Areas of focus include branded consumer products, food, energy services and healthcare. Bregal Partners is part of Bregal Investments, a global family of investment vehicles that has invested over $10 billion since 2002.
American Seafoods is one of the largest seafood companies in the US in terms of revenue and volume. The company harvests and processes a variety of fish species, including Alaska pollock, Pacific whiting (hake), yellowfin sole, and Pacific cod, using catcher-processor vessels. American Seafoods distributes its products to customers globally.